Millionaire Next Door-Pay off your Mortgage Early?
I was watching CNBC today and they were running a promo from author David Bach writer of the popular Millionaire Next Door series of books. These books have sold millions so they other strategy to be a millionaire is to write books and sell millions of them. Tapes, books and seminars seem like a great way to make millions. Anyway the concept that had the audience gasping is the idea of calling your bank or mortgage company and have them change your mortgage to a bi-weekly mortage. The biweekly mortgage as he states will pay your 30 year mortgage 7 years earlier. Wow! that is the way to become a millionaire. First I disagree with the concept as suggested. When you call your bank or mortage company they will want money to give you the biweekly option, if they offer the product. Usually they charge $500.00 or more. I have received mailings from the bank about this. When you pay a 30 year mortgage you have (12) monthly payments. When you pay bi-weekly you have 26 biweekly payments which equal 13 payments per year. You can do the samee thing without calling the bank, or paying them anything. Divide your monthly morgage payment by 12(deduct any insurance or escrow fees) Take this figure and add 1/12th to every monthly payment and list the extra money as a principal payment. Usually there is a line on the payment slip or online where you designate extra principal. Thats it. Same thing. Or you mail one extra principal payment per year. Again marking this as principal to the bank. Does this make you a millionaire? Hard to say. You could have a 15 year mortgage to begin with. You can pay that off in 10. While people cheer about these great ideas keep in mind that you need to to pay more into the mortgage. You will save interest and pay the loan off earlier but there are also other factors to consider. Real Estate is not liquid. Only Countrywide has a biweekly program with no cost to the consumer. Some banks actually refer you to a third party company who charges you a few dollars each bill you pay for the service. Tehy collect the money and one time per year they mail the extra capital to the bank. This is a bad deal for the consumer.
So if you can get a better return on your capital than the interest rate on the mortgage this might not make sense. I think these seminars are great marketing, but you need to look past the claims.
